The Problem with Obama's Antitrust Plan

Article excerpt

The assistant attorney general, a former Federal Trade
commissioner, argued last week that "vigorous antitrust enforcement
must play a significant role in the government response to economic
downturns."

Breaking sharply with the relatively laissez faire antitrust
policy under President Bush, Christine Varney hinted that so-called
dominant firms that engage in "improper business practices" to
stifle their competitors will be likely targets of the new antitrust
enforcement. Several key senior aides who worked in the Clinton
administration have been recruited to investigate and/or litigate
new cases.

Here we go again.

The free market does not need more strict antitrust policy; it
needs simple protection from fraud. The problem is that, in the 119
years that antitrust laws have existed, there is little empirical
evidence that "vigorous enforcement" of them can promote the
interests of consumers. And it was for the alleged benefit of the
consumers that the laws were created.

Indeed, antitrust history is riddled with silly theories and
absurd cases that themselves have restricted and restrained free-
market competition and hampered an efficient allocation of
resources. A look at a few examples is reason to believe that
President Obama's antitrust regulation won't be any different.

The wrongheaded prosecution of efficient dominant firms goes back
to at least 1911, in US v. Standard Oil of New Jersey. Neither the
trial court nor the Supreme Court ever determined that Standard Oil
had employed predatory practices to destroy rivals and raise prices.
Standard earned its high market share through efficient operation
and low prices and always had competition. (In 1911, there were 137
suppliers in oil refining and no monopoly.)

Yet Standard was convicted, despite its economic performance,
since the formation of its Trust ended "competition" between its own
subsidiaries.

A very similar scenario played out in the 19th-century tobacco
industry. The American Tobacco Company had earned a substantial
market share through merger, internal efficiency, and low prices.
Yet despite its economic performance, and despite the fact that
there were thousands of rival suppliers of various tobacco products,
the high court determined that the acquisitions that had created
American Tobacco were themselves a violation of the Sherman Act (the
first major antitrust law in the US).

The 1945 suit against Alcoa and the 1954 suit against United Shoe
Machinery are two of the most egregious anticonsumer monopoly cases
of all time.

In Alcoa's case, the trial judge dismissed 150 separate
government charges concerning alleged monopolization. He also
determined that Alcoa had expanded aluminum ingot production and
lowered prices for 50 years. …